Dollar Firm vs Yen Above 155 as Markets Eye US Data

Key Moments:

Fundamental Drivers

The USD/JPY pair is extending its advance for a third straight session, trading at a more than one-week high in the 155.35-155.40 area on Friday. The move follows data released earlier in the day showing that Japan’s key inflation gauge has slowed to its weakest pace in two years, dampening expectations for an imminent policy tightening by the Bank of Japan (BoJ). At the same time, worries about Japan’s fiscal position are weighing on the Japanese Yen (JPY), offering additional support to the currency pair.

The US Dollar (USD) is trading close to its strongest level since January 23, supported by fading expectations for aggressive interest-rate cuts by the US Federal Reserve (Fed). This firm USD tone is providing another layer of backing for USD/JPY. However, comments from Japan’s Prime Minister Sanae Takaichi, who said that she will steadily lower the debt-to-GDP ratio and restore fiscal sustainability, are helping to calm some market concerns, offering the JPY a degree of support and limiting further upside in the pair.

Market participants also appear confident that the BoJ will continue along its policy tightening trajectory. This stands in contrast to the prevailing view that the Fed will reduce borrowing costs at least twice this year, a divergence that is contributing to a more contained upside for USD/JPY. With this backdrop, traders are turning their attention to upcoming US macroeconomic releases – the Advance Q4 GDP report and the Personal Consumption Expenditure (PCE) Price Index – in search of fresh direction.

Technical Picture: Key Levels and Indicators

From a technical standpoint, USD/JPY has repeatedly rebounded from the 200-day Exponential Moving Average (EMA), reinforcing that level as an important dynamic support zone. The pair has also moved above the 38.2% Fibonacci retracement of the sharp corrective decline from the January swing high, tilting the bias in favor of buyers.

The Moving Average Convergence Divergence (MACD) indicator has edged into positive territory near the zero line. The MACD line is positioned slightly above the Signal line, and the histogram is modestly positive, pointing to gradually improving upside momentum.

The Relative Strength Index (RSI) is at 50, indicating neutral conditions and balanced buying and selling pressures. This configuration suggests that the current advance may encounter resistance near the 50% Fibonacci retracement at 155.79, followed by the 61.8% retracement level at 156.64. A sustained break above these zones would likely reinforce the bullish outlook and open the way toward the 78.6% Fibonacci retracement at 157.86.

If buyers are unable to push through these overhead resistance levels, spot prices could slide back toward the 200-day EMA at 152.63 and the recent swing low at 152.15. The rising 200-day EMA at 152.63 continues to underpin the broader positive bias, with any pullbacks expected to find initial dynamic support near that area.

The MACD’s mildly positive stance and a slightly widening histogram continue to signal an improving technical tone, even though both remain close to the zero line. With the RSI hovering around 50, the market appears to be in a consolidation phase, and a move above the mid-50s on the RSI would likely add confirmation to the ongoing recovery in USD/JPY.

(The technical analysis of this story was written with the help of an AI tool.)

Key USD/JPY Technical Levels

Japanese Yen: Background and Market Role

Core Drivers of JPY

The Japanese Yen (JPY) is one of the most actively traded currencies globally. Its value is influenced by the performance of the Japanese economy and, more specifically, by the Bank of Japan’s policy stance, the spread between Japanese and US bond yields, and overall risk sentiment among market participants, among other factors.

Impact of Bank of Japan Policy

One of the Bank of Japan’s mandates is currency control, so its decisions are crucial for the Yen. The BoJ has at times directly intervened in currency markets, typically to curb Yen strength, although it tends to avoid frequent intervention due to political sensitivities with major trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Yield Differentials and JPY Performance

Over the last decade, the BoJ’s commitment to ultra-loose monetary policy has contributed to a widening policy gap relative to other central banks, particularly the US Federal Reserve. This led to a broader spread between 10-year US and Japanese government bond yields, favoring the US Dollar over the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, alongside interest-rate cuts in other major central banks, is narrowing this yield differential.

Risk Sentiment and Safe-Haven Flows

The Japanese Yen is widely regarded as a safe-haven asset. During periods of market stress or uncertainty, investors are more inclined to move capital into the Yen because of its perceived reliability and stability. As a result, turbulent market conditions are typically associated with Yen appreciation against currencies viewed as riskier.